Trade Secrets & Employees-Part Two

By November 20, 2012Business Blog

Part Two: Strategies for Employers Losing Key Personnel to a Competitor
 
When a high-value employee quits, there may be a chance that he or she could misappropriate the company’s business trade secrets.  This can be exacerbated when a competitor hires the departing employee.
 
In part one of our series about trade secrets and employees, we discussed the legal pitfalls inherent in the hiring of a competitor’s employee.  In part two, we’ll provide strategies for the employer losing a key staff member in order to protect the company against the transfer of trade secrets.

What Happens When an Employee Jumps to the Other Team?
It is a fact of business that talented employees sometimes leave for jobs with competitors.  Unfortunately, high-value employees do not typically leave one company for another without a significant period of negotiation and discussions with the hiring employer or prior to their departure from the current employer.  To make matters worse, the current employer often has had little or no time to complete an in-depth investigation prior to the employee’s departure.  This raises an obvious concern about the transfer of trade secrets.

Below are a few steps that can minimize the risk to the current employer in the short term:

  • Conduct a thorough exit interview.  This includes reviewing any employment and confidentiality agreements with the employee.  Request that the departing employee sign a termination certificate to reaffirm their prior agreements and certify they have nothing in their possession.
  • Identify and collect all electronic storage devices (ESDs).  If possible, take a snapshot of all ESDs for later examination.  Also identify the location of any possible confidential information.  Remember, this information may be located off-site, in the cloud, or in the trunk of the employee’s car.
  • Conduct a forensic examination.  Look for outgoing monitoring, as well as abrupt or increased activity to determine whether to conduct a further forensic examination.  The examination should extend back as far as six months to one year prior to the departure.  Red flags could include file deletions and modifications, access to networks, or increased activity close to the employee’s departure.
  • Communicate with the new employer.  If transfer of trade secrets is suspected, often a call to the new employer is an effective first step in limiting exposure, as most companies will cooperate with reasonable demands.
  • Litigation.  There are many key factors when considering litigation, including legal strategy and the likelihood of success, what is obtainable, damages, and injunctive relief (i.e., temporary restraining order).  Plaintiffs can pursue a variety of legal claims, including misappropriation of trade secrets, breach of contract, breach of fiduciary duty, termination of employment, and confidentiality, to name a few.  It is important to work with an attorney with expertise representing corporations and business professionals in complex employment litigation, contractual disputes, and copyright and trademark litigation.

Proactive Steps
Employers also can take proactive steps to maintain the secrecy of their proprietary and confidential information, such as:

  • Labeling documents that contain trade secrets as “confidential” and treating them accordingly.
  • Drafting and enforcing personnel policies to inform employees about information the company considers to be confidential.
  • Requiring that employees who have access to confidential information sign confidentiality and nondisclosure agreements.
  • Including a confidentiality provision in contracts with vendors, consultants, independent contractors, temporary employees and, where applicable, customers.

Conclusion
Trade secrets can be one of the most valuable assets held by a company.  Employers faced with the loss of key personnel should be concerned about the potential transfer of trade secrets.  The preceding information provides just a few steps that can be taken to limit exposure (a more detailed list is available here).